Funding deal fuels interest in California bullet train

SACRAMENTO >> On life support just a few months ago, California’s bullet train has been resuscitated.

Last week, demolition began in Fresno to clear the way for the first stretch of track. More significantly, private investors across the country and abroad are expressing new interest in bankrolling part of the $68 billion project.

The lawsuits that have stymied the plan aren’t yet resolved, but a budget agreement brokered by Gov. Jerry Brown that guarantees the San Francisco-to-Los Angeles rail line its first funding stream — one that leading economists say could reach about three-quarters of a billion dollars annually — has emerged as a “game changer,” high-speed rail experts say.

Inking a deal that will send the project hundreds of millions of dollars a year in fees collected from polluters is the signal the private sector was waiting for, according to formal letters of interest the state received last month. With only a fraction of the project’s funding in hand, the state needs private investment for about one-third of the final price tag to have any hope of completing the rail line.

“The new funding gives us confidence that as political leanings and priorities change, it won’t be easy for the government to back out of its end of the deal,” said Stephen Polechronis, senior vice president of Los Angeles-based AECOM, one of the world’s largest engineering and construction firms. “We feel we have a partner now.”

To be sure, the bullet train project is hardly home free. Questions about the state’s ability to obtain more construction funding — especially from a skeptical Congress — avoid expensive construction delays and operate the rail line without heavy taxpayer subsidies still linger.

Rep. Kevin McCarthy, the incoming House majority leader from Bakersfield, said in an interview last week that he vows to do what he can to kill the project. “If Sacramento looks to Washington to pay for the train, that will never happen,” he told the New York Times.

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But it’s significant that Vinci Concessions, a French company that’s considered a world leader in developing highly technical high-speed rail projects, is one of the nine companies that eagerly wrote to California about the bullet train last month. Several other firms that wrote letters are based in Spain, also home to a state-of-the-art system.

Before now, there’s been virtually no interest from private companies because there was no ongoing government commitment to fund the line.

It’s too soon to know what kinds of investments the authority will seek to leverage with its new state funding. The state could ask private companies to give loans that must be paid back with interest, or it may seek financial support from companies that could design, build, operate and maintain portions of the rail line, like the new Burbank-to-Palmdale segment the authority’s board is set to consider next month. Those kinds of public-private partnerships are typical in Europe and Japan, where bullets trains are commonplace.

“Developing the first high-speed rail corridor in the United States is an extremely exciting proposition,” said Sidney Florey, Vinci Concessions’ director of North American business development, whose company is now building a bullet train between Tour and Bordeaux in France. “If California makes the right offer, anybody in this industry would be interested.”

The budget deal Brown struck with Democratic legislative leaders promises to send 25 percent of the fees collected each year from polluters under the state’s landmark “cap and trade” law to the bullet train.

Last week, an all-female crew demolished the first of many structures the state must clear to make way for a 29-mile stretch of track in and around Fresno. By 2017, that portion of the rail line will stretch 130 miles and connect Madera to Bakersfield. And in September, High-Speed Rail Authority CEO Jeff Morales expects to invite industry leaders to Sacramento for a public discussion about how to finance the system with their help.

“You can draw parallels between this funding and the job you need to qualify for a mortgage and buy a house,” Morales said. “In both cases, a regular income stream unlocks the opportunity to do financing.”

It’s difficult to predict how much the new state funding will grow as California’s cap-and-trade program kicks into gear, but some economists say the project will get another $4 billion through 2020, and the Legislative Analyst’s Office forecasts it could climb close to $2 billion annually.

The value of stable, ongoing sources of funding for huge infrastructure projects like the bullet train is huge, said Lou Thompson, a veteran rail expert and consultant who chairs an independent group created by the Legislature to evaluate high-speed rail funding plans.

“This money is much different and much more important than one-time contributions, no matter how large or who they’re from,” Thompson said.

AECOM and others are still troubled by the number of lawsuits filed against the authority — 13 so far — but Polechronis said it’s common for large infrastructure projects to face litigation.

“I can’t say I like it, but I’m not surprised,” said Polechronis, whose company has helped design and build other high-profile public works projects, including New York City’s Second Avenue subway and London’s Crossrail, a new high-frequency, high-capacity rail line.

In November, a Sacramento judge ruled that the state rail agency had failed to comply with Proposition 1A, the ballot measure voters approved in 2008 that dedicates $9 billion in bonds to the bullet train. The decision blocked the state from spending any of that money and threatened to cripple the project because several billion dollars in federal funds were at risk, too.

At Brown’s urging, state attorneys quickly appealed the ruling, and a panel of appellate division judges is expected to issue a decision in late August, said H.D. Palmer, a spokesman for the state Department of Finance.

Other lawsuits challenge the project’s compliance with strict state environmental rules and argue the rail line is a poor use of the money generated by 2006 landmark legislation that seeks to ease the effects of climate change by taxing the worst polluters.

The timing of the cap-and-trade spending agreement also helped the high-speed rail agency protect $3.2 billion in federal funds it needs to build the rail line.

Acknowledging the project’s legal woes, the Federal Railroad Administration allowed the authority to spend a chunk of the federal money up front. But by the end of last month, California was obligated to spend some of its own money on the rail line, too, according to a grant agreement.

Without the $250 million the authority is getting this year through Brown’s budget deal, and with the state bond money still stuck in legal limbo, it might not have been possible for the state to comply otherwise.

Opponents of the project dismissed the idea that steady state budget allocations and encouraging letters would make a difference to the federal government or result in significant private investment.

“They still have an 80 percent funding gap, and cap-and-trade money will only supply a fraction of that gap at best,” said Michael Brady, a Bay Area attorney representing several Kings Country residents who filed suit to stop the project. “I don’t think it will work at all.”